ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis and other parts of this Annual Report on Form 10-K contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives, expectations, forecasts and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Overview

Kodiak Sciences (we or the Company) is a biopharmaceutical company committed to researching, developing and commercializing transformative therapeutics to treat high prevalence retinal diseases in the United States and additional international markets. We are bringing new science to the design and development of next generation retinal medicines. Our ABC PlatformTM uses molecular engineering to merge the fields of antibody-based and chemistry-based therapies and is at the core of Kodiak’s discovery engine. Our lead product candidate, KSI-301, is a novel anti-VEGF antibody biopolymer conjugate being investigated in multiple pivotal studies in retinal vascular diseases including wAMD, DME, RVO and non-proliferative diabetic retinopathy. Our hope with KSI-301 is to meaningfully extend treatment intervals for all patients with retinal vascular diseases. Our pipeline, including product candidates KSI-501 and KSI-601, aims to bring a similar ethos of drug development to other unmet needs in retina such as dry AMD and glaucoma.

Our goal is to prevent and treat the major causes of blindness by developing next-generation therapeutics for chronic, high-prevalence retinal diseases. Our overall objective is to develop our product candidates, seek FDA and worldwide health authority marketing authorization approvals, and ultimately commercialize our product candidates.

KSI-301 Phase 2b/3 Pivotal Study in Wet AMD Top-line Readout

We recently announced top-line results from our randomized, double-masked, active comparator-controlled Phase 2b/3 clinical trial evaluating the efficacy, durability and safety of KSI-301, a novel antibody biopolymer conjugate, in treatment-naïve subjects with neovascular (wet) age-related macular degeneration (“wet AMD”).

The trial randomized 559 participants, approximately 80% of whom were enrolled in the United States. The study had two treatment arms: KSI-301 5mg on a flexible long-interval regimen and aflibercept 2mg on a fixed short-interval regimen. In the study, three monthly loading doses were administered to all subjects at 0-, 4- and 8-weeks. Subjects on aflibercept were then treated at fixed two month intervals. Subjects on KSI-301 were assessed starting three months after the completion of the loading phase (i.e. beginning at 20 weeks) and, based on predefined disease activity criteria, were treated every three-, four-, or five-months. As a result, patients in the KSI-301 group did not receive dosing more frequently than every three months at any point in the study after the loading phase. The primary endpoint of the study was the average change in best-corrected visual acuity (BCVA) score (a measure of the best vision a person can achieve when reading letters on an eye chart, including with correction such as glasses) from baseline at year one. For the assessment of the primary efficacy endpoint, KSI-301 patients in all three groups (dosed every three, four or five months) were pooled together and their BCVA was compared as a group to the aflibercept group (dosed every two months).

The results show that KSI-301 did not meet the primary efficacy endpoint of showing non-inferior visual acuity gains for subjects dosed on extended regimens compared to aflibercept given every eight weeks.

A pre-specified secondary analysis at year 1 assessing durability showed 59% of patients in the KSI-301 arm achieved five-month dosing with visual acuity gains and anatomic improvements comparable to the overall aflibercept group.

KSI-301 was well-tolerated in the study, with no new safety signals identified.

Intraocular inflammation occurred in 3.2% of KSI-301 treated patients as compared to 0.0% of patients treated with aflibercept. Recent wet AMD studies have reported intraocular inflammation rates with aflibercept of 1–4.5%. In all cases reported in the Phase 2b/3 study, the clinical finding of inflammation resolved, and no cases of intraocular inflammation with vascular occlusions were observed. We believe that these safety data coupled with the safety observations across the ongoing Phase 3 studies continue to suggest a safety profile for KSI-301 comparable to today’s existing standard of care agents.

We believe allowing treatment with KSI-301 no more often than every twelve weeks after the loading phase for every patient was insufficient. Nonetheless, we believe the results demonstrate a clear anti-VEGF effect, strong durability and a reassuring safety profile. We believe these data continue to support the potential of KSI-301 and our ABC Platform to significantly extend treatment intervals in retinal disorders in a safe and convenient manner.

KSI-301 Regulatory Plan and Outlook

If successful, we intend to include data from the BEACON, GLEAM/GLIMMER, and DAYLIGHT studies in a single initial BLA, and would seek labeling at launch that is supportive of a range of dosing intervals. We continue to expect that data from our GLEAM and GLIMMER studies will serve as the primary basis for our anticipated BLA submission in DME. Data from our BEACON study is intended to serve as the basis for our anticipated BLA submission in RVO. In wet AMD, we believe that the DAYLIGHT study may clarify the ability of KSI-301 when dosed more frequently to effectively treat a broader population of patients with wet AMD. If successful, we believe that data from our DAYLIGHT study could form the basis of our anticipated BLA submission in wet AMD, with monthly dosing. We believe that, over time, we may be able to generate additional data to support longer-interval dosing in wet AMD in certain patient populations. We are not planning for results of the GLOW study to be included in our initial BLA filing, given our expectations for a longer recruitment timeframe. We may include the results of the GLOW study in NPDR without DME in a supplemental BLA following our planned initial BLA submission.

Financial Operations Overview

Since inception in June 2009, we have devoted substantially all of our resources to discovering and developing product candidates and manufacturing processes, building our ABC Platform and assembling our core capabilities in drug development for ophthalmic disease. We plan to continue to use third-party contract research organizations, or CROs, to carry out our preclinical and clinical development. We rely on third-party contract manufacturing organizations, or CMOs, to manufacture and supply our preclinical and clinical materials to be used during the development of our product candidates. We are evaluating investments in commercial manufacturing capacity. We do not have any products approved for sale and have not generated any product revenue since inception.

We have funded our operations primarily through the sale and issuance of equity securities. In October 2018, we completed our initial public offering, or IPO. In December 2019, we completed a follow-on offering. In November 2020, we completed a second follow-on offering.

We have incurred significant operating losses to date and expect that our operating losses will increase significantly as we advance our product candidates, particularly KSI-301, through preclinical and clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization; broaden and improve our platform; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. In addition, we expect to incur additional costs associated with operating as a public company. Our net loss was $267.0 million, $133.1 million and $47.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, we had an accumulated deficit of $558.2 million.

Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of KSI-301 for wet AMD, RVO, DME or NPDR or delay our efforts to advance and expand our product pipeline.

In November 2020, we filed an automatic shelf registration statement (File No. 333-250109), which became effective upon filing. The shelf registration statement allows us to issue certain securities, including shares of our common stock, from time to time. In November 2020, we completed a follow-on offering pursuant to the automatic shelf registration and issued and sold 5,972,222 shares of common stock, including the underwriters’ full exercise of their over-allotment option, at a price to the public of $108.00 per share under our shelf registration statement. The gross proceeds from this offering were $645.0 million, resulting in aggregate net proceeds of $612.0 million after deducting underwriting discounts and commissions and other offering costs.

As of December 31, 2021, we had cash and cash equivalents of $731.5 million.

Components of Operating Results

Operating Expenses

Research and Development Expenses

Substantially all of our research and development expenses consist of expenses incurred in connection with the development of our ABC Platform and product candidates. These expenses include certain payroll and personnel expenses, including stock-based compensation, for our research and product development employees; laboratory supplies and facility costs; consulting costs; contract manufacturing and fees paid to CROs to conduct certain research and development activities on our behalf; and allocated overhead, including rent, equipment, depreciation and utilities. We expense both internal and external research and development expenses as they are incurred. Costs of certain activities, such as manufacturing and preclinical and clinical studies, are generally recognized based on an evaluation of the progress to completion of specific tasks. Nonrefundable payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized. The capitalized amounts are recognized as expense as the goods are delivered or the related services are performed.

We are focusing substantially all of our resources and development efforts on the development of our product candidates, in particular KSI-301. We expect our research and development expenses to increase substantially during the next few years as we conduct our Phase 3 clinical studies, complete our clinical program, pursue regulatory approval of our drug candidates and prepare for a possible commercial launch. Predicting the timing or the final cost to complete our clinical program or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our drug candidates will receive regulatory approval with any certainty.

General and Administrative Expenses

General and administrative expenses consist principally of payroll and personnel expenses, including stock-based compensation; professional fees for legal, consulting, accounting and tax services; allocated overhead, including rent, equipment, depreciation and utilities; and other general operating expenses not otherwise classified as research and development expenses.

We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, including stock-based compensation, expanded infrastructure and higher consulting, legal and accounting services associated with maintaining compliance with requirements of the stock exchange listing and Securities and Exchange Commission, or SEC, investor relations costs and director and officer insurance premiums associated with being a public company.

Interest Income

Interest income consists primarily of interest income earned on our cash, cash equivalents and marketable securities.

Other Income (Expense), Net

Other income (expense), net consists primarily of tax provisions and amortized issuance costs from the liability related to the future sale of royalties to BBA in 2019, net of accretion income and amortization expense on marketable debt securities.

Results of Operations

The following table summarizes our results of operations for the periods indicated (in thousands, except percentages) :

Operating expenses

Interest expense (22 ) (25 ) (8 ) 3 *

* Percentage is not meaningful

Research and Development Expenses

Research and development expenses increased $110.0 million, or 102%, during the year ended December 31, 2020 as compared to the year ended December 31, 2021.

The following table summarizes our research and development expenses for the periods indicated (in thousands):

KSI-301 program expenses increased $79.3 million during the year ended December 31, 2021 as compared to 2020. The increase was primarily due to clinical trial costs to support ongoing trials, as well as manufacturing progress for KSI-301. We initiated two pivotal Phase 3 clinical studies in DME (GLEAM and GLIMMER) and one pivotal Phase 3 clinical study in RVO (BEACON) in the third quarter of 2020. In June 2021, we randomized the first patients into an additional Phase 3 study in wet AMD (DAYLIGHT) designed to broaden KSI-301’s product labeling.

KSI-501 program expenses increased $3.0 million during the year ended December 31, 2021 as compared to 2020, primarily due to increased research and development activities for KSI-501.

ABC Platform external expenses increased $4.0 million during the year ended December 31, 2021 as compared to 2020. The increase was primarily driven by manufacturing runs to support our product candidate pipeline.

Payroll and personnel expenses increased $20.7 million during the year ended December 31, 2021 as compared to 2020, due to increased headcount and stock-based compensation expense. We recorded an incremental stock-based compensation expense of $8.3 million relating to the long-term performance incentive plan program in the fourth quarter of 2021. Furthermore, the research and development headcount increased 38% during the year ended December 31, 2021.

Facilities and other research and development expenses increased $3.0 million during the year ended December 31, 2021 as compared to 2020, primarily due to lease costs for our Palo Alto and Switzerland facilities expansion.

General and Administrative Expenses

General and administrative expenses increased $21.1 million, or 74%, during the year ended December 31, 2021 as compared to 2020, primarily driven by increased headcount and stock-based compensation expense, professional services related to consulting, legal and accounting, and lease costs for Palo Alto facilities expansion. We recorded an incremental stock-based compensation expense of $5.9 million relating to the long-term performance incentive plan program in the fourth quarter of 2021.

Interest Income

Interest income decreased $2.6 million during the year ended December 31, 2021 as compared to 2020, which was mainly attributable to interest income earned on increased cash equivalent balances from our follow-on offering in December 2019 and November 2020.

Other Income (Expense), Net

Other income (expense), net decreased $0.2 million during the year ended December 31, 2021 as compared to 2020, which was mainly attributable to issuance costs from the liability related to the future sale of royalties to BBA in December 2019.

Liquidity and Capital Resources; Plan of Operations

Sources of Liquidity

We have funded our operations primarily through the sale and issuance of common stock, redeemable convertible preferred stock, convertible notes and warrants. As of December 31, 2021, we had cash and cash equivalents of $731.5 million.

Follow-On Offering

In December 2019, we completed a follow-on offering pursuant to the shelf registration on Form S-3 and issued and sold 6,900,000 shares of common stock at a price to the public of $46.00 per share. The gross proceeds from this offering were $317.4 million, resulting in aggregate net proceeds of $297.6 million after deducting underwriting discounts and commissions and other offering costs payable by us.

In November 2020, we completed a follow-on offering pursuant to the shelf registration on Form S-3 and issued and sold 5,972,222 shares of common stock at a price to the public of $108.00 per share. The gross proceeds from this offering were $645.0 million, resulting in aggregate net proceeds of $612.0 million after deducting underwriting discounts and commissions and other offering costs.

Future Funding Requirements

We have incurred net losses since our inception. For the years ended December 31, 2021, 2020 and 2019, we had net losses of $267.0 million, $133.1 million, and $47.4 million, respectively, and we expect to continue to incur additional losses in future periods. As of December 31, 2021, we had an accumulated deficit of $558.2 million.

We have based these estimates on assumptions that may prove to be wrong, and we could deplete our available capital resources sooner than we expect. Because of the risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors.

To date, we have not generated any product revenue. We do not expect to generate any product revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates or enter into collaborative agreements with third parties, and we do not know when, or if, either will occur. We expect to continue to incur significant losses for the foreseeable future, and we expect our losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Moreover, we expect to continue incurring additional costs associated with operating as a public company.

We have based these estimates on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. The timing and amount of our operating expenditures and capital requirements will depend on many factors, including:

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the scope, timing, rate of progress and costs of our drug discovery, preclinical development activities, laboratory testing and clinical trials for our product candidates;

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the number and scope of clinical programs we decide to pursue;

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the scope and costs of manufacturing development and commercial manufacturing activities;

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the extent to which we acquire or in-license other product candidates and technologies;

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the cost, timing and outcome of regulatory review of our product candidates;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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our ability to establish and maintain collaborations on favorable terms, if at all;

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our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates;

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the costs associated with being a public company; and

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the cost and timing associated with commercializing our product candidates, if they receive marketing approval.

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. We may also be required to sell or license rights to our product candidates in certain territories or indications to others that we would prefer to develop and commercialize ourselves.

The significant uncertainties caused by the evolving effects of the COVID-19 pandemic may also negatively impact our operations and capital resources. We and our key clinical and manufacturing partners have been able to continue to advance our operations, and we continue to monitor the impact of COVID-19 on our ability to continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. This pandemic may ultimately have a material adverse effect on our liquidity and operating plans, although we are unable to make any prediction with certainty given the spread and rapidly changing nature of the pandemic and the evolving global actions taken to contain and treat the novel coronavirus.

Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. See the section titled “Risk Factors” for additional risks associated with our substantial capital requirements.

Summary Statement of Cash Flows

The following table sets forth the primary sources and uses of cash for each of the periods presented below:

Year Ended December 31,

(in thousands)

Net cash (used in) provided by:

Cash Flows from Operating Activities

Net cash used in operating activities was $182.3 million for the year ended December 31, 2021. Cash used in operating activities was primarily driven by the increase in net loss during this period due to increased payroll and personnel expenses and manufacturing and clinical trial costs to support overall growth. Cash used in operating activities was also driven by changes in operating assets and liabilities.

Cash Flows from Investing Activities

Net cash used in investing activities was $38.8 million for the year ended December 31, 2021 and primarily related to deposit on manufacturing equipment, as well as purchases of property and equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities was $8.2 million for the year ended December 31, 2021, which consisted primarily due to the proceeds from stock option exercises and proceeds from issuances of common stock pursuant to employee stock purchase plans.

Contractual Obligations and Commitments

Operating Leases

Operating lease payments represent our commitment for future minimum rent made under non-cancelable leases for our corporate offices in Palo Alto, California, and office and laboratory space in Visp, Switzerland. The total future payments for our operating lease obligations as of December 31, 2021 is $123.7 million, of which $7.3 million is due in the next twelve months.

Embedded Lease

Embedded lease payment represent our commitment for future minimum payment made under the manufacturing agreement with Lonza Ltd. for the clinical and commercial supply of drug substance in a custom-built manufacturing facility. The total future payments relating to our embedded lease, including capital contribution payments, as of December 31, 2021 is approximately 189.5 million Swiss Francs, of which 53.0 million Swiss Francs is expected to be due in the next twelve months.

Manufacturing Agreements

The Company has entered into service and equipment purchase agreements in the normal course of business with various providers, which can contain minimum commitments or other noncancelable obligations. As of December 31, 2021, the total amount of contractual obligations related to these manufacturing agreements that are subject to cancellation fees, including accrued amounts, was $69.5 million, of which $59.7 million is expected to be due in the next twelve months.

For further information on our leases and manufacturing agreements, refer to Note 7 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Clinical Agreements

The Company may incur potential contingent payments upon our achievement of clinical, regulatory and commercial milestones, as applicable. Due to the uncertainty of the achievement and timing of the events requiring payment under these agreements, the amount to be paid by us are not fixed or determinable at this time.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. The impact of the ongoing COVID-19 pandemic continues to evolve. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Accrued Research and Development

Our accrued research and development costs are estimated based on the level of services performed, including the phase or completion of events, and contracted costs. Accrued clinical trial and related costs are estimated using data such as patient enrollment, clinical site activations or information provided by outside service providers regarding their actual costs incurred. Management determined accrual estimates through reports from and discussions with clinical personnel and outside service providers as to the progress of trials, or the services completed. The estimated costs of research and development provided, but not yet invoiced, are included in accrued liabilities and other current liabilities on the consolidated balance sheets. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other assets until the services are rendered.

Stock-Based Compensation Expense

We measure and recognize compensation expense for all stock‐based awards made to employees, directors and non‐employees, based on estimated fair values of the awards on the grant date and recognized using the straight‐line method over the requisite service period.

The fair value of options is estimated on the grant date using the Black‐Scholes option valuation model or Monte Carlo simulation model. The calculation of stock‐based compensation expense requires that we make certain assumptions and judgments about a number of complex and subjective variables used in the valuation model, including the expected term, expected volatility of the underlying common stock and risk‐free interest rate. Our stock-based awards are subject to either service, performance-based or market-based vesting conditions. We evaluate whether achievement of the performance conditions is probable and record expense over the appropriate service period based on this assessment.

Changes in these assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop.

Income Taxes

We provide for income taxes under the asset and liability method. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and net operating loss, or NOLs, and credit carryforwards, and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. Deferred income tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits will not be realized.

We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and we will determine whether (1) the factors underlying the sustainability assertion have changed and (2) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits. As of December 31, 2021 and 2020, none of the unrecognized tax benefits would affect income tax expense with consideration of our valuation allowance. We do not expect that our uncertain tax positions will materially change in the next twelve months.

NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code, which could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on our value immediately prior to the ownership change. We have completed a Section 382 study through December 31, 2020 which concluded no such ownership change had occurred through December 31. 2020. Subsequent ownership changes since the most recent study may further affect the limitation in future years.

Recent Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is discussed under Note 2 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to market risk related to changes in interest rates. As of December 31, 2021, we had cash and cash equivalents of $731.5 million, primarily invested in money market funds. As of December 31, 2020, we had cash and cash equivalents of $969.0 million, primarily invested in money market funds, U.S. treasury securities and corporate notes. Changes in the general level of interest rates can affect the fair value of our investment portfolio. If market interest rates were to increase immediately and uniformly by 100 basis points, or one percentage point, from levels at December 31, 2021, the net fair value of our interest-sensitive marketable securities would have resulted in a hypothetical decline of less than $0.1 million.

We do not believe that other market risks, like foreign currency exchange rate risk, had a significant impact on our results of operations for any periods presented herein.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID: 238) 83

Consolidated Financial Statements

Consolidated Balance Sheets 85

Consolidated Statements of Operations and Comprehensive Loss 86

Consolidated Statements of Stockholders’ Equity 87

Consolidated Statements of Cash Flows 88

Notes to Consolidated Financial Statements 89

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Kodiak Sciences Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Kodiak Sciences Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued Clinical Trial and Related Costs

As described in Notes 2 and 4 to the consolidated financial statements, the Company recorded $21.8 million in accrued clinical trial and related costs as of December 31, 2021. Accrued clinical trial and related costs are estimated using data such as patient enrollment, clinical site activations or information provided by outside service providers regarding their actual costs incurred. Management determined accrual estimates through reports from and discussions with clinical personnel and outside service providers as to the progress of trials, or the services completed.

The principal considerations for our determination that performing procedures relating to accrued clinical trial and related costs is a critical audit matter are the judgment by management in evaluating the data used in developing the accrued clinical trial and related cost estimates, which in turn led to a high degree of auditor judgment and effort in performing procedures to evaluate audit evidence obtained related to patient enrollment, clinical site activations and services rendered by outside service providers used by management in developing the estimates.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the completeness and accuracy of clinical trial accruals, including controls relating to the reliability of data used in the development of the estimates. These procedures also included, among others, (1) testing management’s process for developing the estimated accrued clinical trial and related costs, (2) evaluating the appropriateness of the approach used by management to develop the estimates, (3) testing the completeness and accuracy of the data used in developing the estimates, including data related to patient enrollment, clinical site activations and services rendered by outside service providers, (4) confirming clinical costs and contracted fees with the clinical vendors on a test basis, and (5) examining clinical vendor contracts on a test basis to evaluate the completeness of costs considered in the estimates.

/s/ PricewaterhouseCoopers LLP

San Jose, California

March 1, 2022

We have served as the Company’s auditor since 2016.

Kodiak Sciences Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

Assets

Current assets:

Marketable securities — 24,578

Prepaid expenses and other current assets 3,301 3,031

Liabilities and stockholders’ equity

Current liabilities:

Accrued and other current liabilities 48,319 20,402

Operating lease liability, net of current portion 76,063 75,028

Liability related to sale of future royalties 99,943 99,890

Commitments and contingencies (Note 7)

Stockholders’ equity:

Accumulated other comprehensive income — 53

The accompanying notes are an integral part of these consolidated financial statements.

Kodiak Sciences Inc.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

Year Ended December 31,

Operating expenses

Interest expense (22 ) (25 ) (8 )

Other income (expense), net (215 ) 34 265

Net loss per common share, basic and diluted $ (5.16 ) $ (2.91 ) $ (1.25 )

Other comprehensive income (loss)

Total other comprehensive income (loss) (53 ) 43 10

The accompanying notes are an integral part of these consolidated financial statements.

Kodiak Sciences Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share amounts)

Shares Amount Capital Income (Loss) Deficit Equity

Issuance of common stock upon exercise of common stock warrant 1 — — — — —

Stock-based compensation expense — — 6,110 — — 6,110

Other comprehensive income — — — 10 — 10

Stock-based compensation expense — — 30,668 — — 30,668

Other comprehensive income — — — 43 — 43

Stock-based compensation expense — — 61,385 — — 61,385

Other comprehensive loss — — — (53 ) — (53 )

The accompanying notes are an integral part of these consolidated financial statements.

Kodiak Sciences Inc.

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Loss on disposal of long-lived asset 120 — —

Amortization of operating lease right-of-use asset 7,708 3,731 373

Amortization of issuance costs 53 49 —

Changes in assets and liabilities:

Prepaid expenses and other current assets (270 ) (218 ) (168 )

Cash flows from investing activities

Deposits on property and equipment (46,266 ) (3,184 ) —

Purchase of marketable securities — (86,317 ) (150,961 )

Cash flows from financing activities

Proceeds from issuance of common stock upon options exercise 7,743 6,248 2,287

Payments for restricted stock units, net of taxes withheld — (487 ) (132 )

Proceeds from sale of future royalties, net of issuance costs — 99,643 —

Principal payments of capital lease — (5 ) (48 )

Principal payments of tenant improvement allowance payable (45 ) (38 ) (36 )

Supplemental cash flow information:

Cash paid for interest $ 22 $ 25 $ 8

Supplemental disclosures of non-cash investing and financing information:

Reclassification of deposits to property and equipment $ 2,370 $ — $ —

Unpaid offering costs $ — $ 238 $ 459

The accompanying notes are an integral part of these consolidated financial statements.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

1. The Company

Kodiak Sciences Inc. (the “Company”) is a biopharmaceutical company specializing in novel therapeutics to treat high-prevalence retinal diseases. The Company devotes substantially all of its time and efforts to performing research and development, raising capital and recruiting personnel.

Follow-On Offering

In December 2019, the Company sold and issued 6,900,000 shares of common stock, including the underwriters’ full exercise of their over-allotment option, at a price to the public of $46.00 per share for gross proceeds of $317.4 million. The aggregate net proceeds to the Company from the follow-on offering were $297.6 million after deducting underwriting discounts and commissions and other offering costs.

In November 2020, the Company sold and issued 5,972,222 shares of common stock, including the underwriters’ full exercise of their over-allotment option, at a price to the public of $108.00 per share for gross proceeds of $645.0 million. The aggregate net proceeds to the Company from the follow-on offering were $612.0 million after deducting underwriting discounts and commissions and other offering costs.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Reclassification

Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period presentation.

Principles of Consolidation

The consolidated financial statements include the Company’s accounts and the accounts of Kodiak Sciences Financing Corporation and Kodiak Sciences China, the Company’s direct wholly owned subsidiaries, incorporated in the United States and Cayman Islands, respectively, and Kodiak Sciences GmbH and Kodiak Sciences Valais GmbH, the Company’s indirect wholly owned subsidiaries, both incorporated in Switzerland. All intercompany accounts and transactions have been eliminated. The functional and reporting currency of the Company and its subsidiaries is the U.S. dollar. The aggregate foreign currency transaction loss included in determining net loss was $0.3 million, $0.3 million, and less than $0.1million for the years ended December 31, 2021, 2020 and 2019, respectively.

Segments

The Company operates and manages its business as one reportable and operating segment, which is the business of research and development of drugs for retinal diseases. The chief operating decision maker reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and expenses during the reporting period. The impact of the ongoing COVID-19 pandemic continues to evolve. As a result, certain estimates and assumptions required increased judgment and carried a higher degree of variability and volatility, including but not limited to, the fair value of marketable securities, performance-based equity awards, and research and development accruals. As events continue to unfold and additional information becomes available, these estimates may change materially in future periods. Actual results could differ from those estimates.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Risk and Uncertainties

In March 2020, the World Health Organization declared a pandemic due to the global COVID-19 outbreak. The significant uncertainties caused by the ongoing COVID-19 pandemic may negatively impact the Company’s operations, liquidity, and capital resources and will depend on certain evolving developments, including the duration and spread of the outbreak, regulatory and private sector responses and the impact on employees and vendors including supply chain and clinical partners, all of which are uncertain and cannot be predicted. During this pandemic, the Company continues to work closely with clinical sites towards maximal patient safety and the lowest number of missed visits and study discontinuations. The Company has taken and continues to take proactive measures to maintain the integrity of its ongoing clinical studies. Despite these efforts, the ongoing COVID-19 pandemic could significantly impact clinical trial enrollment and completion of its clinical studies. The Company will continue to monitor the COVID-19 situation and its impact on the ability to continue the development of, and seek regulatory approvals for, the Company’s product candidates, and begin to commercialize any approved products.

The Company’s future results of operations involve a number of risks and uncertainties common to clinical-stage companies in the biotechnology industry. The Company’s product candidates are in development and the Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s potential drug candidates, uncertainty of market acceptance of any of the Company’s product candidates that receive regulatory approval, competition from new technological innovations, substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals, contract manufacturer and research organizations, and other suppliers.

Products developed by the Company require approvals from the U.S. Food and Drug Administration (“FDA”) or other international regulatory agencies prior to commercial sales. There can be no assurance that any of the Company’s product candidates will receive the necessary approvals. If the Company is denied approval, approval is delayed or the Company is unable to maintain approvals, it could have a materially adverse impact on the Company. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales.

The Company expects to incur substantial operating losses for the next several years and will need to obtain additional financing in order to complete clinical trials and launch and commercialize any product candidates for which it receives regulatory approval. There can be no assurance that such financing will be available or will be on terms acceptable by the Company.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and marketable securities. As of December 31, 2021 and 2020, cash, cash equivalents and marketable securities were invested primarily in money market funds, U.S. treasury securities and corporate notes through highly rated financial institutions. Investments are restricted, in accordance with the Company’s investment policy, to a concentration limit per issuer or sector.

Cash and Cash Equivalents

The Company considers all highly liquid investments with stated maturities of three months or less at the date of purchase to be cash equivalents.

Marketable Securities

The Company may invest excess cash balances in marketable securities. The investments in marketable securities are classified as either held-to-maturity or available-for-sale based on facts and circumstances present at the time of purchase. Marketable securities with a remaining maturity date greater than one year are classified as non-current. The Company’s marketable securities can consist of U.S. treasury securities, commercial paper, and corporate bonds. Marketable securities are carried at fair value with the unrealized gains and losses included in other comprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or discount arising at purchase of marketable debt securities is amortized and/or accreted to other income (expense), net over the life of the instrument. Realized gains and losses are determined using the specific identification method and are included in other income (expense), net.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other-than-temporary” and, if so, marks the investment to market through a charge to the Company’s statement of operations and comprehensive loss.

Restricted Cash

As of December 31, 2021, and 2020, the Company had $6.3 million and $6.3 million, respectively, of long-term restricted cash deposited with a financial institution. The entire amount is held in separate bank accounts to support letter of credit agreements related to the Company’s U.S. corporate offices.

Fair Value of Financial Instruments

Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company's own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and inputs to the model.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amounts of the Company’s financial instruments consisting of cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued liabilities and other current liabilities, approximate fair value due to their relatively short maturities.

Leases

The Company determines if an arrangement is, or contains, a lease at inception and then classifies the lease as operating or financing based on the underlying terms and conditions of the contract. Leases with terms greater than one year are initially recognized on the balance sheet as right-of-use assets and lease liabilities based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the incremental borrowing rate, which is the rate incurred to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term and in a similar economic environment of the applicable country or region. Variable lease payments are excluded from the right of use assets and operating lease liabilities and are recognized in the period in which the obligation for those payments is incurred.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation for acquired assets. Construction in progress reflects amounts incurred for construction or improvements of property or equipment that have not been placed in service. Depreciation is computed using the straight-line method over the estimated useful lives of assets, which is generally four years for laboratory equipment, three years for computer equipment and office equipment, five years for computer software and five to seven years for furniture and fixtures. Leasehold improvements are stated at cost and amortized over the shorter of the useful life of the assets or the length of the lease. Upon sale or retirement of assets, the costs and related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the assets. There have been no such impairments of long-lived assets in the years ended December 31, 2021 and 2020.

Research and Development Expenses

Costs related to research, design and development of products are charged to research and development expense as incurred. Research and development costs include, but are not limited to, payroll and personnel expenses, including stock-based compensation, laboratory supplies, outside services and allocated overhead, including rent, equipment, depreciation and utilities.

Accrued Research and Development

The Company has entered into various agreements with various third parties, including clinical investigator sites, contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), to provide research and development activities. The Company’s accrued research and development costs are estimated based on the level of services performed, including the phase or completion of events, and contracted costs. Accrued clinical trial and related costs are estimated using data such as patient enrollment, clinical site activations or information provided by outside service providers regarding their actual costs incurred. Management determined accrual estimates through reports from and discussions with clinical personnel and outside service providers as to the progress of trials, or the services completed. The estimated costs of research and development provided, but not yet invoiced, are included in accrued and other current liabilities on the consolidated balance sheets. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the performance of the related services are recorded as prepaid expenses or other assets until the services are rendered.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with the provisions of ASC 718, Compensation-Stock Compensation. The Company measures stock-based compensation expense for stock options and restricted stock units granted to its employees, directors and non-employees based on the estimated fair value of the awards on the grant date. The fair value of options is calculated using the Black-Scholes valuation model or the Monte Carlo simulation model, which requires the input of subjective assumptions, including (i) the calculation of expected term of the award, (ii) the expected stock price volatility, (iii) the risk-free interest rate, and (iv) expected dividends.

The expected term is calculated using the simplified method, which is available where there is insufficient historical data about exercise patterns and post-vesting employment termination behavior, and equals the midpoint between the vesting date and maximum contractual expiration date.

The expected volatility is estimated based on the Company's historical information for its common stock and supplemented by the historical stock price volatility of a representative peer group over a period equivalent to the expected term of the equity award.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The risk-free interest rate is estimated based on the U.S. Treasury securities with maturity dates commensurate with the expected term of the equity award.

The Company has never paid, and does not expect to pay, dividends in the foreseeable future.

The expense is recorded on a straight-line basis over the requisite service period, which is generally the vesting period, for the entire award. The Company accounts for forfeitures as they occur.

Prior to the adoption of Accounting Standards Update ("ASU") No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"), the measurement date for non-employee awards was generally the date the services are completed, resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards. After adoption of ASU 2018-07 as of January 1, 2019, the measurement date for non-employee awards is the date of grant without changes in the fair value of the award.

The Company has certain stock options and restricted stock units that vest in conjunction with certain performance conditions. At each reporting date, the Company is required to evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon the Company's assessment of accomplishing each performance provision. Refer to Note 11.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company’s assets and liabilities and their financial statement reported amounts. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses (“NOLs”) and research and development credit carryforwards and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized.

The Company accounts for uncertain tax positions by assessing all material positions taken in any assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

Comprehensive Loss

Comprehensive loss is composed of net loss and other comprehensive income (loss). Other comprehensive income (loss) consists primarily of unrealized gains and losses on debt securities.

Liability related to Sale of Future Royalties

On December 1, 2019, the Company and its subsidiary Kodiak Sciences GmbH entered into a funding agreement with Baker Bros. Advisors, LP (“BBA”), which holds more than 5% of the Company’s stock, pursuant to which BBA purchased the right to receive a capped 4.5% royalty on future net sales of KSI-301, the Company’s anti-VEGF antibody biopolymer conjugate therapy, in exchange for $225.0 million. Under the terms of the funding agreement, there is no obligation to repay any funding amount received, other than through the capped royalty payments on future product revenues. The Company recorded the funding amount paid by BBA as a liability on the consolidated balance sheet net of issuance costs, in accordance with ASC 730, Research and Development. Under ASC 730, the significant related party relationship between the Company and BBA creates an implicit obligation to repay the funding amount paid to the Company. Once royalty payments to BBA are determined to be probable and estimable, and if such amounts exceed the liability balance, the Company will impute interest to accrete the liability on a prospective basis based on such estimates. If and when the Company makes royalty payments under the funding agreement, it would reduce the liability balance at such time. In July 2021, the funding agreement was amended, at the Company’s request, that the remaining funding amount of $125.0 million would not be paid. Refer to Note 14.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Credit Losses – Available-for-Sale Debt Securities

For available-for-sale debt securities in an unrealized loss position, the Company will periodically assess its portfolio for impairment. The assessment first considers the intent or requirement to sell the security. If either of these criteria are met, the amortized cost basis will be written down to fair value through earnings.

If not met, the Company will evaluate whether the decline resulted from credit losses or other factors by considering the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses will be recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income or loss, as applicable.

Net Loss per Share Attributable to Common Stockholders

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred stock is considered a participating security. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss is attributed entirely to common stockholders. Since the Company has reported net loss for all periods presented, diluted net loss per share is the same as basic net loss per common share for those periods.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the FASB, under its ASC or other standard setting bodies, and adopted by the Company as of the specified effective date. There have been no new accounting pronouncements issued nor adopted during the year ended December 31, 2021 that are of significance to the Company.

3. Property and Equipment, net

Property and equipment, net consists of the following (in thousands):

Computer software 89 89

Less: Accumulated depreciation (2,939 ) (2,170 )

All property and equipment are maintained in the United States and Switzerland. Depreciation expense, including depreciation of assets under capital leases, was $1.0 million, $0.5 million and $0.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

4. Accrued Liabilities and Other Current Liabilities

Accrued liabilities and other current liabilities consist of the following (in thousands):

Accrued clinical trial and related costs $ 21,776 $ 11,119

Accrued leasehold improvements 13,021 19

Accrued salaries and benefits 6,187 5,094

Accrued research and development 6,041 3,082

Accrued professional fees 176 253

Accrued other liabilities 715 583

Total accrued and other current liabilities $ 48,319 $ 20,402

5. Fair Value Measurements

The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis (in thousands):

Fair Value Measurements at December 31, 2021

Level 1 Level 2 Level 3 Total

Cash equivalents:

Fair Value Measurements at December 31, 2020

Level 1 Level 2 Level 3 Total

Cash equivalents:

Marketable securities:

As of December 31, 2021 and 2020, the fair value of the liability related to sale of future royalties is based on our current estimates of future royalties expected to be paid to BBA, which are considered Level 3 inputs. Refer to Note 14.There were no transfers of assets or liabilities between the fair value measurement levels during the years ended December 31, 2021 and 2020.

6. Marketable Securities

The marketable securities are classified as available-for-sale and consist of U.S. treasury securities, corporate notes and commercial paper. The fair value measurement data for marketable securities is obtained from independent pricing services. The Company validates the prices provided by the third-party pricing services by understanding the valuation methods and data sources used and analyzing the pricing data in certain instances.

The Company had no marketable securities at December 31, 2021. The following table summarizes the marketable securities (in thousands):

As of December 31, 2020 AmortizedCost UnrealizedGains UnrealizedLosses FairValue

Total marketable securities, current $ 24,525 $ 53 $ — $ 24,578

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

All marketable securities held at December 31, 2020 had effective maturities of less than one year. There were no marketable securities with unrealized losses as of December 31, 2020. The Company did not realized any gains or losses recognized on the sale or maturity of available-for-sale debt securities during the year ended December 31, 2021 and as a result, the Company did not reclassify any amounts out of accumulated comprehensive loss. There were no impairment charges or recoveries recorded during the years ended December 31, 2021 and 2020.

7. Commitments and Contingencies

Leases

Palo Alto, California Leases

In June 2020, the Company entered into lease agreements for two buildings at 1200 and 1250 Page Mill Road in Palo Alto, California, which are now the Company’s U.S. corporate offices. The facilities are approximately 82,662 square feet and 72,812 square feet, respectively and include office and laboratory space. For 1200 Page Mill Road, the monthly rent during the initial 6.5-year term will be approximately $0.6 million, with annual year-over-year increases of 3% plus certain operating expenses and taxes and total rent abatement of approximately $7.2 million. The Company has an option to extend the lease term for a period of 6.5 years. For 1250 Page Mill Road, the monthly rent during the initial 13-year term will be approximately $0.5 million, with annual year-over-year increases of 3% plus certain operating expenses and taxes and total rent abatement of approximately $6.3 million. The Landlord will provide a tenant improvement allowance of approximately $1.2 million and $10.6 million for each building, respectively. The Company has two options to extend the lease term for a period of 5 years each. The Company determined that the renewal options were not reasonably certain at lease inception for the two buildings. The Company executed a $10.9 million cash-collateralized letter of credit, which was subsequently reduced to $6.2 million as a result of meeting certain reduction requirements specified therein in 2020. The cash collateralizing the letter of credit is classified as restricted cash on the Company’s consolidated balance sheets. Under ASC 842, the Company classified these leases as operating leases and recorded right-of-use assets and lease liabilities on the lease commencement date. As of December 31, 2021, the Company received a tenant improvement allowance of $1.4 million.

The Company continues to lease office and laboratory space at 2631 Hanover Street in Palo Alto, California. The Company entered into a lease agreement in January 2013 which was amended in March 2016 and extended the lease term until October 2023. The Company classified this lease as an operating lease and recorded a right-of-use asset and lease liability on January 1, 2019 and recognized rent expense on a straight-line basis throughout the remaining lease term.

Switzerland Lease

In April 2020, the Company entered into a lease agreement for office and laboratory space at Rottenstrasse 5 in Visp, Switzerland. The space is approximately 1,000 square meters. The initial lease term is 5 years, with automatic renewals every 5 years for a maximum lease term of 15 years. The monthly rent during the initial 5-year term will be approximately 32.0 thousand Swiss Francs plus certain operating expenses and taxes. Under ASC 842, the Company classified these leases as operating leases and recorded right-of-use assets and lease liabilities on the lease commencement date.

The maturities of the operating lease liabilities as of December 31, 2021 were as follows (in thousands):

Year ending December 31, As of December 31, 2021

Total undiscounted lease payments 123,719

Less: imputed interest (33,360 )

Less: future tenant improvement reimbursements (10,363 )

Total operating lease liabilities $ 79,996

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The minimum lease payments above do not include any related common area maintenance charges or real estate taxes. The weighted-average remaining lease terms and weighted-average discount rates were as follows:

Weighted-average remaining lease term (in years) 8.8 9.5

Weighted-average discount rate 6.7 % 6.7 %

Embedded Lease

In August 2020, the Company and its wholly-owned subsidiary Kodiak Sciences GmbH entered into a manufacturing agreement with Lonza Ltd (“Lonza”) for the clinical and commercial supply of drug substance for KSI-301. A custom-built manufacturing facility is planned to be completed and dedicated to the manufacture of the Company’s drug substance. The manufacturing agreement has an initial term of eight years, and the Company has the right to extend the term up to a total of 16 years. The Company and Lonza each have the ability to terminate this agreement upon the occurrence of certain conditions.

In April 2021, the agreement was amended to provide for higher annual manufacturing capacity. The Company expanded and finalized the design and scope of the bioconjugate manufacturing facility with a revised estimated capital contribution of approximately 75.0 million Swiss Francs of which the Company has paid 35.0 million Swiss Francs of the capital contribution, equivalent to $38.7 million U.S. Dollars, which is recorded in other assets on the consolidated balance sheet as of December 31, 2021. Over the period from 2022 through 2029, manufacturing payments totaling approximately 150.0 million Swiss Francs may be incurred for potential commercial supply of KSI-301 drug substance. These commitments are not included in the operating lease liabilities table above.

The Company concluded that this agreement contains an embedded lease as the custom-built manufacturing suite will be dedicated for the Company’s use. As of December 31, 2021, the Company did not have control of this manufacturing space and therefore, did not record a right-of-use asset and corresponding lease liability.

Manufacturing Agreements

The Company has entered into service and equipment purchase agreements in the normal course of business with various providers, pursuant to which such providers agreed to perform activities in connection with the manufacturing process of certain materials. These agreements, and any related amendments, state that planned activities and purchases that are included in the signed work orders are, in some cases, binding and, hence, obligate the Company to pay the full price of the work order upon satisfactory delivery of products and services or obligate the Company to the binding amount regardless of whether such planned activities are in fact performed. Per the terms of the agreements, the Company has the option to cancel signed orders at any time upon written notice, which may or may not be subject to payment of a cancellation fee. The level of cancellation fees may be dependent on the timing of the written notice in relation to the commencement date of the work, with the maximum cancellation amount dependent on the agreement or the work order.

As of December 31, 2021 and 2020, the total amount of contractual obligations related to these manufacturing agreements that are subject to cancellation fees, including accrued amounts, were $69.5 million and $56.5 million, respectively. These amounts represent our minimal contractual obligations, excluding the commitments under the embedded lease arrangement. Purchases under these manufacturing agreements for the years ended December 31, 2021, 2020 and 2019 were $31.8 million, $16.8 million and $7.9 million, respectively. As of December 31, 2021, the Company had not incurred any cancellation fees under the manufacturing agreements.

Other Funding Commitments

In the normal course of business, the Company enters into agreements with third-parties for services to be provided to the Company. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement. The actual amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of services to be provided to the Company.

The Company has also entered into various cancellable license agreements for certain technology. The Company may be obligated to make payments on future sales of specified products associated with such license agreements. Such payments are dependent on future product sales and are not estimable.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Tenant Improvement Allowance Payable

In March 2016, the Company entered into a lease amendment, under which the Company is allowed to draw down an additional allowance of $0.4 million for tenant improvements related to the office lease over the period from the execution of the agreement to October 2023. The interest rate is 8% per year over 10 years. Principal and interest are payable on the first day of every month.

As of December 31, 2021 and 2020, the current portion of the tenant improvement allowance payable in accrued and other current liabilities was less than $0.1million and less than $0.1 million, respectively. As of December 31, 2021 and 2020, the non-current portion of the tenant improvement allowance payable in other liabilities was $0.2 million and $0.3 million, respectively.

Legal Proceedings

From time to time, the Company may become involved in legal proceedings arising from the ordinary course of its business. Management is currently not aware of any matters that could have a material adverse effect on the Company’s financial position, results of operations or cash flows. The Company records a legal liability when it believes that it is both probable that a liability may be imputed, and the amount of the liability can be reasonably estimated. Significant judgment by the Company is required to determine both probability and the estimated amount.

Indemnification

To the extent permitted under Delaware law, the Company has agreed to indemnify its directors and officers for certain events or occurrences while the director or officer is, or was serving, at the Company’s request in such capacity. The indemnification period covers all pertinent events and occurrences during the director’s or officer’s service. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not specified in the agreements; however, the Company has director and officer insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

8. Income Taxes

The components of loss before income taxes were as follows (in thousands):

The provision (benefit) for income taxes consists of the following (in thousands):

Current:

Federal $ — $ — $ —

State — — —

Total current 74 14 —

Deferred:

Federal — — —

State — — —

Foreign — — —

Total deferred — — —

Provision (Benefit) for income taxes $ 74 $ 14 $ —

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The tax effects of temporary differences that give rise to significant components of the net deferred tax assets are as follows (in thousands):

Deferred tax assets:

Property and equipment — 127 143

Deferred tax liabilities:

Capitalized legal fees — (2 ) (33 )

Property and equipment (350 ) — —

Total net deferred tax assets $ — $ — $ —

The Company has recorded a full valuation allowance against its net deferred tax assets due to the uncertainty as to whether such assets will be realized. The net change in the total valuation allowance for the years ended December 31, 2021, 2020 and 2019 was an increase of approximately $213.8 million, $24.8 million and $15.9 million, respectively.

NOLs and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code, which could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the Company’s value immediately prior to the ownership change. The Company has completed a Section 382 study through December 31, 2020 which concluded no such ownership change had occurred through December 31, 2020. Subsequent ownership changes since the most recent study may further affect the limitation in future years.

As of December 31, 2021, the Company had $57.5 million of federal and $395.4 million of state net operating loss available to offset future taxable income. A portion of the federal net operating loss carryforwards begin to expire in 2035 and the state net operating loss carryforwards begin to expire in 2035, if not utilized. $39.4 million of the federal net operating loss are not subject to expiration.

As of December 31, 2021, the Company also had federal and state research and development credit carryforwards of $17.9 million and $7.2 million, respectively. The federal research and development credit carryforwards expire beginning 2035. The California tax credit can be carried forward indefinitely.

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, an economic stimulus package in response to the COVID-19 global pandemic and the Families First Coronavirus Response Act, or FFCR Act, which permits employees of certain organizations paid sick time stemming from COVID-19-related issues. The CARES Act contains several corporate income tax provisions, including making remaining alternative minimum tax credits immediately refundable; providing a 5-year carryback of NOLs generated in tax years 2018, 2019, and 2020, and removing the 80% taxable income limitation on utilization of those NOLs if carried back to prior tax years or utilized in tax years beginning before 2021; temporarily liberalizing the interest deductibility rules under Section 163(j) of the CARES Act, by raising the adjusted taxable income limitation from 30% to 50% for tax years 2019 and 2020 and giving taxpayers the election of using 2019 adjusted taxable income for purposes of computing 2020 interest deductibility. The CARES Act did not have a material impact on the Company’s tax provision for the years ended December 31, 2020 or 2021.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The Consolidated Appropriations Act, 2021, which was enacted on December 27, 2020, has expanded, extended, and clarified selected CARES Act provisions, specifically on Paycheck Protection Program loans and Employee Retention Tax Credits, 100% deductibility of business meals as well as other tax extenders. The Consolidated Appropriations Act did not have a material impact on the Company’s tax provision for the years ended December 31, 2020 or 2021.

California Assembly Bill 85 (AB 85) was signed into law by Governor Gavin Newsom on June 29, 2020. The legislation suspends the California NOL deductions for 2020, 2021, and 2022 for certain taxpayers and imposes a limitation on certain California tax credits for 2020, 2021, and 2022. The legislation disallows the use of California NOL deductions if the taxpayer recognizes business income and its adjusted gross income is greater than $1,000,000. The carryover periods for NOL deductions disallowed by this provision will be extended. Additionally, any business credit will only offset a maximum of $5,000,000 of California tax. Given the Company’s taxable loss position, this legislation did not impact the tax provision for the years ended December 31, 2020 or 2021.

California Senate Bill 113 (SB 113), was signed into law by Governor Newsom on February 9, 2022. The legislation contains important California tax law changes, including reinstatement of business tax credits and net NOL deductions limited by AB 85 mentioned above. The new tax law should be accounted for under ASC 740 in the period of enactment (2022) but is not expected to have a material impact on the Company’s tax provision due to its taxable loss position.

A reconciliation of the Company’s effective tax rate to the statutory U.S. federal rate is as follows:

Federal statutory income tax rate 21.0 % 21.0 % 21.0 %

Foreign tax rate differential (7.7 ) (7.9 ) (12.4 )

Change in valuation allowance (78.3 ) (17.3 ) (30.5 )

Stock-based compensation (1.2 ) 6.7 7.7

Research tax credit 2.4 3.8 3.3

Other — — (0.1 )

Sale of future royalties 0.1 (9.4 ) —

Intangible valuation 57.8 — —

Provision for income taxes 0.0 % 0.0 % 0.0 %

The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. As of December 31, 2021, 2020 and 2019, none of the unrecognized tax benefits would affect income tax expense with consideration of the valuation allowance. The Company does not anticipate the uncertain tax positions will materially change in the next 12 months. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

The beginning and ending unrecognized tax benefits amounts are as follows (in thousands):

Unrecognized tax benefits at beginning of period $ 4,650 $ 1,838 $ 398

Increases related to current year tax positions 2,079 2,812 1,440

Unrecognized tax benefits at end of period $ 6,729 $ 4,650 $ 1,838

The Company files income tax returns in the United States and Switzerland. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. All tax returns remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss or credits.

100

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

9. Preferred Stock

As of December 31, 2021 and 2020, the Company’s amended and restated certificate of incorporation authorized the Company to issue up to 10,000,000 shares of preferred stock at the par value of $0.0001 per share. As of December 31, 2021, there are no shares of the Company’s preferred stock issued or outstanding.

10. Common Stock

As of December 31, 2021 and 2020, the Company’s amended and restated certificate of incorporation authorized the Company to issue 490,000,000 shares of common stock at the par value of $0.0001 per share. Each share of common stock is entitled to one vote. The board of directors may declare and pay dividends to holders of common stock. The Company has never declared or paid any dividends on common stock.

The Company had reserved common stock for future issuances as follows:

Exercise of common stock warrants outstanding 250,000 399,999

11. Stock-Based Compensation

2018 Equity Incentive Plan

In August 2018, the Company adopted the 2018 Equity Incentive Plan (“2018 Plan”), which became effective on the business day prior to the effectiveness of the registration statement relating to the IPO. The 2018 Plan initially reserved 4,300,000 shares of common stock for the issuance of incentive stock options ("ISOs"), nonstatutory stock options ("NSOs"), restricted stock, restricted stock units (“RSUs”), stock appreciation rights, performance units and performance shares to employees, directors and consultants of the Company.The number of shares available for issuance will increase annually on the first day of each fiscal year beginning in 2019 equal to the least of (1) 4,300,000 shares, and (2) 4% of outstanding shares of common stock as of the last day of the immediately preceding year, and (3) such other amount as determined by the board of directors. The exercise price of options must be equal to at least the fair market value of the common stock on the grant date. For ISOs, the term may not exceedten years, except in respect to any participant with more than 10% of voting power of all classes or stock, then the term may not exceed five years and the exercise price must be equal to at least 110% of the fair market value of the common stock on the grant date. Options granted generally vest over four years.

The number of shares available for issuance increased by 2,044,492 shares in 2021 and there were 2,101,369 shares available for grant under the 2018 Plan as of December 31, 2021.

2021 Long-Term Performance Incentive Plan

In August 2021, the Company adopted the 2021 Long-Term Performance Incentive Plan (“2021 LTPIP”), which was approved by the Company's stockholders on October 13, 2021. The 2021 LTPIP was designed to be a long-term, pay-for-performance, incentive plan that would further align the interests of management and other eligible employees with the creation of substantial long-term value for the Company's stockholders. Eligible employees at or above grade level 10 were provided a one-time opportunity to “opt-in” or “buy-in” to the 2021 LTPIP, via a one-time election, and, if they so elected, agreed to forgo up to 75% of their annual equity incentive awards for the next seven years, and instead received a one-time grant of performance-based stock options that could potentially provide three times more value than the forgone annual equity incentive compensation.

Additionally, the Company granted stock options to eligible employees below grade level 10 under the broader long-term performance incentive program terms from the existing share reserve under the 2018 Plan and not pursuant to the 2021 LTPIP. The terms for the stock options granted under the 2021 LTPIP and the 2018 Plan are collectively referred to as the "LTPIP Program".

101

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The 2021 LTPIP reserved 5,502,334 shares of common stock for the issuance of NSOs. For the year ended December 31, 2021, 5,502,334 performance-based stock options were granted under the 2021 LTPIP. There were no shares available for grant under the 2021 LTPIP as of December 31, 2021. An additional 1,920,625 performance-based stock options were granted under the 2018 Plan as part of the LTPIP Program.

The exercise price of options granted under the LTPIP Program was $88.21, the fair market value of the common stock on August 12, 2021, the date of approval by the board of directors.

Shares underlying the options granted under the LTPIP Program may be earned based on the achievement of the performance-based requirement and/or certain operational milestones; after being earned, the shares then generally vest based on continued service with the Company following the date earned and through the end of the seven-year performance period.

The performance-based requirement consists of seven tranches of stock price goals. The first tranche requires the Company's stock price per share to meet or exceed $200, with each tranche thereafter requiring a $100 incremental increase up to $800 for the last tranche. A percentage of the shares underlying the option will be earned based on the stock price meeting or exceeding the corresponding stock price goal for a period of 90 consecutive trading days during the seven-year performance period, as follows:

Up to 35% of the shares underlying an option may also be earned based on the Company’s achievement of certain operational milestones during the seven-year performance period. A participant may earn up to 25% of their award based on approval by the U.S. Food and Drug Administration of a Biologics License Application in respect of a first, second, and third major indication (RVO, DME and/or wAMD). An additional operational milestone requires the Company to generate sales of at least $2.5 billion in a completed fiscal year.

The maximum percentage of shares that can be earned based on the attainment of the operational milestones is as follows:

Operational Milestone Operational Milestone Earning Percentage

First BLA Approval 15.0 %

Second BLA Approval 5.0 %

Third BLA Approval 5.0 %

Sales > $2.5 billion in a Fiscal Year 10.0 %

The portion of the award that may be earned based on attainment of an operational milestone is inclusive of, and not in addition to, any portion of the award that may be earned based on the attainment of the performance-based requirement. Therefore, to the extent a portion of the award is earned based on the attainment of an operational milestone, the subsequent tranche(s) of the award that is eligible to be earned based on the performance-based requirement will be reduced by the excess, if any, of the number of shares earned over the cumulative earning percentage provided for in the performance-based requirement.

The performance-based requirement and operational milestones were not achieved as of December 31, 2021.

102

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

2021 LTPIP Modification Accounting

In August 2021, the Company granted annual long-term incentive awards, which included time-vested stock options, time-vested RSUs and performance-based stock options (“PSOs”) to employees and nonemployees. As a result of stockholder approval of the 2021 LTPIP in October, a portion of the annual long-term incentive awards, elected by eligible employees to forgo, was exchanged for the options granted under the LTPIP Program.

The Company determined the exchange was a modification under ASC 718. Under ASC 718, the exchange of the original award (annual long-term incentive awards granted in August 2021) with the modified award (options granted under the LTPIP Program) represented a change in the original terms and conditions. The modification resulted in additional compensation cost equal to the incremental value between the original and modified awards to be recognized. The Company considered the fair value, vesting conditions and classification of the annual long-term incentive awards granted in August 2021, immediately prior to the modification date, compared to the fair value of the options granted under the LTPIP Program to determine the incremental value.

For the annual long-term incentive awards granted in August 2021, the Company continues to record the unrecognized compensation expense over the original vesting period.

For the options granted under the LTPIP Program, in accordance with ASC 718-10-55-16, the Company used the Monte Carlo simulation model to estimate the grant date fair value of the options granted under the LTPIP Program that will be earned upon attainment of the stock price goals and to determine the incremental value. The fair value of the options granted under the LTPIP Program was estimated using the following weighted-average assumptions:

Expected volatility 61 %

Risk-free interest rate 1.54 %

Dividend yield 0 %

Simulation term 9.83

As of grant date, the exchange of equity awards under the LTPIP Program resulted in total incremental stock-based compensation costs of $336.3 million to be recognized ratably over a weighted-average period of 5.32 years. The weighted-average grant date fair value of the options granted under the LTPIP Program was $49.18.

For the year ended December 31, 2021, the Company recognized $14.2 million of incremental stock based compensation cost for the options granted under the LTPIP Program. As of December 31, 2021, there was $321.1 million of unrecognized incremental stock-based compensation expense related to the 7,404,209 options granted under the LTPIP Program, but not yet earned or vested, to be recognized over a weighted-average period of 5.11 years.

Stock Options

Stock option activity, including stock options and PSOs under the 2021 LTPIP, 2018 Plan and 2015 Plan is summarized as follows:

353,751 time-vested stock options and 246,963 PSOs from the annual long-term incentive awards were exchanged for the options granted under the LTPIP Program in 2021.

103

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The weighted-average grant date fair value of the time-vested stock options granted for 2021, 2020 and 2019 was $51.55, $32.44 and $34.11 per share, respectively. The aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the period in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable.

Employee Stock Options

The Company estimated the fair value of employee stock options using the Black-Scholes valuation model. The fair value of time-vested employee stock options was estimated using the following weighted-average assumptions:

Year Ended December 31,

Expected volatility 61 % 66 % 68 %

Dividend yield 0 % 0 % 0 %

The total fair value of employee options vested during the years ended December 31, 2021, 2020 and 2019 was $26.9 million, $19.7 million and $4.6 million, respectively. Stock-based compensation expense recognized during the years ended December 31, 2021, 2020 and 2019 for options granted to employees, including the options granted under the LTPIP Program, was $44.1 million, $20.8 million and $5.7 million, respectively.

Restricted Shares

Restricted share activity, including restricted stock units (“RSUs”), and performance-based restricted stock units (“PSUs”), under the 2018 Plan and 2015 Plan is summarized as follows:

Number ofRestrictedShares WeightedAverageGrant DateFair Value

57,614 time-vested RSUs from the annual long-term incentive awards were exchanged for the options granted under the LTPIP Program in 2021.

Employee Restricted Stock Units

RSUs will vest in four equal annual installments over four years, which is the requisite service period after that date.

The Company granted 184,200 RSUs to employees in 2021. The total fair value of RSUs vested during the year ended December 31, 2021, 2020, and 2019 was $3.2 million, $0.3 million and $0.3 million, respectively. Stock-based compensation expense recognized during the years ended December 31, 2021, 2020 and 2019 for RSUs was $4.4 million, $1.9 million, and $0.3 million, respectively.

Non-Employee Awards

The Company granted 33,655 stock options and 9,300 RSUs to non-employees during the year ended December 31, 2021. The Company granted 41,500 and 15,000 stock options to non-employees during the years ended December 31, 2020 and 2019, respectively.

104

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Subsequent to the adoption of ASU 2018-07 effective January 1, 2019, existing stock options granted to non-employees will no longer be revalued, and the estimated fair value of new stock options granted to non-employees will be calculated on the date of grant and not remeasured, similar to stock options granted to employees. The fair value of non-employee stock options was estimated using the following weighted-average assumptions:

Year Ended December 31,

Expected volatility 60 % 67 % 73 %

Dividend yield 0 % 0 % 0 %

Stock-based compensation expense recognized during the years ended December 31, 2021, 2020 and 2019 for equity awards granted to non-employees was $1.2 million, $0.7 million and $0.1 million, respectively.

Performance-Based Awards

In December 2019, the Company granted 170,150 performance-based stock options and 128,900 performance-based RSUs (collectively "2019 PSA"). These equity awards will vest 25% upon the achievement of specific clinical development milestones. The remaining awards will then vest in three equal annual installments after that date. The performance criteria for 2019 PSA was achieved in June 2021. 42,536 of the performance-based stock options and 28,905 of the performance-based restricted stock vested during 2021. The total fair value of the performance-based stock options and RSUs vested during the years ended December 31, 2021 was $4.2 million.

The Company estimated the fair value of the 2019 PSA using the Black-Scholes valuation model. Significant assumptions utilized in estimating the fair value of 2019 PSA include an expected volatility of 72%, a risk-free rate of 1.67%, expected dividend yield of 0%, and expected term of 6.31 years.

In February 2021, the Company granted 190,831 performance-based stock options ("2021 Feb PSO"). These stock options will vest 25% upon the achievement of specific clinical development milestones. The remaining awards will then vest in 36 successive equal monthly installments after the performance criteria is achieved. As of December 31, 2021, the Company believes that the achievement of the requisite performance criteria for the 2021 Feb PSO continues to be probable.

The 2021 Feb PSO fair value was $77.41 per share. The Company estimated the fair value of the 2021 Feb PSO using the Black-Scholes valuation model. Significant assumptions utilized in estimating the fair value of 2021 Feb PSO include an expected volatility of 66%, a risk-free rate of 0.66%, expected dividend yield of 0%, and expected term of 5.94 years.

In August 2021, the Company granted 478,750 performance-based stock options ("2021 Aug PSO"). These stock options will vest upon the achievement of specific clinical development milestones with the percentage of shares earned being dependent on the relative total stockholder return over the performance period. The remaining shares will then vest in 12 successive equal monthly installments after the performance criteria is achieved. As of December 31, 2021, the requisite performance criteria for the 2021 Aug PSO was not achieved and not probable; no stock-based compensation expense was recognized during the year ended December 31, 2021.

The weighted-average estimated fair value per share of the 2021 Aug PSO was $41.49, which was derived from a Monte Carlo simulation model. Significant assumptions utilized in estimating the fair value of 2021 Aug PSO include an expected volatility of 60%, a risk-free rate of 1.05%, expected dividend yield of 0%, and expected term of 6.49 years.

Performance-based stock options are recorded as expense beginning when vesting events are determined to be probable. Stock-based compensation expense recognized during the years ended December 31, 2021, 2020 and 2019 for the performance-based equity awards was $11.4 million, $7.2 million and less than $0.1million, respectively.

105

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

2018 Employee Share Purchase Plan

In August 2018, the Company adopted the 2018 Employee Share Purchase Plan (“ESPP”), which became effective on the business day prior to the effectiveness of the registration statement relating to the IPO. A total of 460,000 shares of common stock were initially reserved for issuance under the ESPP. The initial offering period of the ESPP was authorized by the Company’s board of directors and commenced on January 4, 2021. Each offering period is twelve months long, with two purchase periods. ESPP participants will purchase shares of common stock at a price per share equal to 85% of the lesser of (1) the fair market value per share of the common stock on the enrollment date or (2) the fair market value of the common stock on the exercise date.

The Company issued 6,958 shares under the ESPP during the year ended December 31, 2021. Stock-based compensation expense recognized during the year ended December 31, 2021 for the ESPP was $0.3 million.

Stock-Based Compensation Expense

Stock-based compensation is classified in the consolidated statements of operations and comprehensive loss as follows (in thousands):

Year Ended December 31,

As of December 31, 2021, the Company had $434.4 million of unrecognized compensation expense related to unvested share-based awards and ESPP, which is expected to be recognized over a weighted-average period of 4.4 years.

Shares Subject to Repurchase

The Company has a right of repurchase with respect to unvested shares issued upon early exercise of options at an amount equal to the lower of (1) the exercise price of each restricted share being repurchased and (2) the fair market value of such restricted share at the time the Company’s right of repurchase is exercised. The Company’s right to repurchase these shares lapses as those shares vest over the requisite service period.

Shares purchased by employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be issued until those shares vest according to their respective vesting schedules. Cash received for early exercised stock options is recorded as accrued liabilities and other current liabilities on the consolidated balance sheet and is reclassified to common stock and additional paid-in capital as such shares vest. At December 31, 2021, there were no early exercised stock options subject to the Company’s right of repurchase.

106

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

12. Net Loss per Share Attributable to Common Stockholders

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders which excludes shares which are legally outstanding, but subject to repurchase by the Company (in thousands, except share and per share data):

Year Ended December 31,

Numerator:

Denominator:

The following potentially dilutive securities, presented on an as-converted to common stock basis, were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been antidilutive:

As of December 31,

13. 401(k) Plan

In 2011, the Company adopted a 401(k) retirement and savings plan covering all employees. The 401(k) plan allows employees to make pre- and post-tax contributions up to the maximum allowable amount set by the Internal Revenue Service. The 401(k) plan was amended to include an employer matching provision in 2019. The Company will make matching contributions of 100% of employee contributions up to a maximum of 50% of the individual maximum contribution limit allowed under the IRS rules. For the year ended December 31, 2021, 2020 and 2019, the expense related to the matching contributions was $0.7 million, $0.6 million and $0.3 million, respectively.

14. Liability related to Sale of Future Royalties

On December 1, 2019, the Company and its subsidiary Kodiak Sciences GmbH entered into a funding agreement with BBA, which holds more than 5% of the Company’s capital stock, pursuant to which BBA purchased the right to receive a capped 4.5% royalty on future net sales of KSI-301, the Company’s anti-VEGF antibody biopolymer conjugate therapy, in exchange for $225.0 million. The royalty terminates upon the date that BBA has received an aggregate amount equal to 4.5 times the funding amount paid to the Company, unless earlier terminated or repurchased by the Company. Under the terms of the funding agreement, there is no obligation to repay any funding amount received, other than through the capped royalty payments on future product revenues. The Company has the option, exercisable at any point during the term of the funding agreement, to repurchase 100% of the royalties due to BBA for a purchase price equal to 4.5 times the funding amount paid to the Company as of such time, less amounts paid by the Company to BBA.

The closing of the funding agreement was subject to certain conditions and occurred in February 2020. The Company received $100.0 million of the funding on February 4, 2020. The remaining $125.0 million, subject to delivery of notice by the Company, was payable upon enrollment of 50% of the patients in the RVO clinical program. In July 2021, the funding agreement was amended, at the Company’s request, that the remaining funding amount of $125.0 million would not be paid. As a result, $0.2 million of deferred financing cost was expensed during the year ended December 31, 2021.

107

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The Company recorded the initial $100.0 million payment as a liability on the consolidated balance sheet net of issuance costs. Once royalty payments to BBA are determined to be probable and estimable, and if such amounts exceed the liability balance, the Company will impute interest to accrete the liability on a prospective basis based on such estimates. If and when the Company makes royalty payments under the funding agreement, it would reduce the liability balance at such time. As of December 31, 2021, royalty payments are not probable and estimable.

For the year ended December 31, 2021 and 2020, no interest expense was recognized for the liability related to the sale of future royalties.

15.Selected Quarterly Financial Data (unaudited)

The following table provides the selected quarterly financial information for the years 2021 and 2020 (in thousands, except per share data):

Three Months Ended

108

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A. CONTROLS AND PROCEDURES

Management’s Evaluation of our Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2021. Based upon such evaluation, our principal executive officer and principal financial officer concluded that the design and operation of our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2021.

KOD US Equity

KOD · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

ITEM 9A. CONTROLS AND PROCEDURES

KOD US Equity☆

KOD · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

ITEM 9A. CONTROLS AND PROCEDURES

KOD US Equity